Billionaire Mukesh Ambani, who aimed to have his telecom and retail businesses contribute on a par with his energy and materials business over the next decade, may realize the goal earlier than anticipated, said analysts.
The analysts drew their conjectures following robust quarterly results of Reliance Industries Ltd (RIL) for the fiscal third quarter.
RIL’s consumer businesses, Reliance Jio Infocomm Ltd (Jio) and Reliance Retail, contributed a combined 37% of Ebitda (earnings before interest, taxes, depreciation and amortization) in the December quarter, increasing from 32% in 2018-19 and 13% in 2017-18. Ebitda is a measure of a company’s overall financial performance.
RIL posted a 13.55% jump in net profit to ₹11,640 crore in the three months ended 31 December, from ₹10,251 crore a year earlier. According to a Bloomberg poll of 14 brokers, RIL’s net profit was estimated at ₹11,181 crore.
“Our aim is to have the consumer businesses contribute on par with the energy and materials business over the next decade when we celebrate our golden jubilee,” Ambani, RIL’s chairman and managing director, had said in 2018.
The total segment Ebitda across all RIL’s businesses increased to ₹23,500 crore in the December quarter, from ₹22,449 crore in the same quarter last fiscal. Ebitda for organized retail rose to ₹2,727 crore from ₹2,322 crore, while for digital services it rose to ₹5,833 crore from ₹4,066 crore.
“RIL has successfully diversified from being a refining and chemicals company to a consumer-facing company. We think this shift is timely as commodity businesses now see disruptive alternatives, especially for refining,” said Amit Shah of BNP Paribas in a 15 January report.
Shah estimates Jio and retail to contribute 35% to FY20 Ebitda, increasing to 46% by FY22.
“This growth, we believe, will be driven by higher Arpu (from the telecom business) and subscriber additions at Jio and continued strength in consumer retail as RIL now begins to benefit from scale,” said Shah. Arpu is average revenue per telecom user and is determined by dividing the total revenue of the operator by the number of users on its network.
Reliance Retail’s revenue for the quarter grew 27% to ₹45,327 crore from ₹35,577 crore with accelerated store rollout and strong like-for-like sales.
“Revenue growth was led by robust 35.7% growth in consumer electronics, fashion and lifestyle, and grocery segments. Segment Ebit rose by 58.0% year-on-year to ₹2,389 crore from ₹1,512 crore, demonstrating strong operating profit during the quarter. Ebit margin improvement is driven by robust store productivity, portfolio mix and operating efficiencies,” according to an RIL earnings statement released on Friday.
Reliance Retail made a soft launch of its new commerce venture called JioMart—Desh Ki Nayi Dukaan, on 30 December. It caters to online shoppers in the suburban Mumbai areas of Navi Mumbai, Thane and Kalyan.
To strengthen its retail offering, RIL is also launching SMART Point, a smaller avatar of a SMART store with a presence in a residential neighbourhood with SMART’s price promise. The stores will serve daily multi-purpose needs of consumers, including grocery, pharmacy, and assisted e-commerce. In a presentation to analysts, RIL said this concept will be launched in less than 45 days starting with 18 stores across Navi Mumbai, Thane and Kalyan from end-December.
Jio posted a net profit of ₹1,350 crore in the December quarter, a 62.5% increase year-on-year, because of interconnect usage charges (IUC) on off-network calls. It shifted from free voice calling to imposing user charges for calls made to rival operators to account for IUC that it has to pay to those operators.